The recommendation, submitted today to Prime Minister Shinzo Abe, sets the stage for his push to allow the military to play a greater role in international security.
Japan currently maintains a military only for its own defense, and has previously interpreted the war-renouncing Article 9 of its postwar constitution to mean it cannot engage in what is known as collective self-defence.
If approved, the change could allow Japan to come to the defense of the United States or other countries, even if Japan itself is not under attack.
"Collective self-defense probably goes even further than all the other reinterpretations that Article 9 has seen thus far, so it would be a huge step," said Chris Winkler, a constitutional expert at the German Institute for Japanese Studies in Tokyo.
The proposal faces doubts within Abe's ruling coalition and he will have to build a consensus to win Cabinet approval.
Surveys show public opinion is mixed. Opponents say it would undermine the war-renouncing clause of the constitution.
The report said that a deteriorating regional security environment, namely threats from China and North Korea, makes Japan's ban on collective self-defense inadequate.
The change is needed in the face of rising tensions in east Asia and pressures on US military spending, said Yosuke Isozaki, Abe's national security adviser.
"Japan will become a country that can make more international contributions by deepening its relations with the U.S. And expanding our ties with countries other than America," he said.
